• USD/JPY gained some traction after the BoJ announced its decision, though lacked follow-through.
  • Receding bets for a 100 bps Fed rate hike in July weighed on the USD and capped gains for the pair.
  • The Fed-BoJ policy divergence, bullish flag breakout support prospects for some meaningful upside.

The USD/JPY pair refreshed its weekly high during the Asian session on Thursday after the Bank of Japan announced its policy decision, though struggled to capitalize on the move beyond the mid-138.00s. As was widely expected, the central bank defied the global tightening trend and stuck to its ultra-easy policy settings. The BoJ reiterated its commitment to continue buying the Japanese Government Bonds (JGB) at an annual pace of around ¥80 trillion. This, in turn, weighed on the Japanese yen and offered some support to the major, though the emergence of fresh US dollar selling kept a lid on any meaningful upside.

The USD struggled to capitalize on the previous day's bounce from its lowest level since July amid receding bets for a more aggressive rate hike by the Federal Reserve in July. It is worth recalling that several FOMC members said last week that they will likely stick to a 75 bps rate increase at the upcoming meeting on July 26-27. This, in turn, forced investors to scale back their expectations for a supersized 100 bps rate hike move, which continued acting as a headwind for the greenback. That said, elevated US Treasury bond yields should limit deeper losses for the USD and lend some support to the USD/JPY pair.

Investors still seem convinced that the recent surge in US consumer inflation to a four-decade high would force the Fed to deliver a larger rate hike later this year. The resultant widening of the US-Japan rate differential, along with a modest recovery in the global risk sentiment, could undermine the safe-haven Japanese yen. The fundamental backdrop favours bullish traders and supports prospects for the resumption of the USD/JPY pair's strong uptrend. Market participants now look forward to the US economic docket - featuring the release of the Philly Fed Manufacturing Index and the usual Weekly Initial Jobless  Claims. Apart from this, the US bond yields would influence the USD and provide some impetus to the major.

Technical outlook

From a technical perspective, this week's breakout through a descending channel, which constituted the formation of a bullish flag pattern, adds credence to the positive outlook. Some follow-through buying beyond the daily swing high, around the 138.50-138.55 region would reaffirm the bullish bias and allow the USD/JPY pair to reclaim the 139.00 mark. Bulls might eventually aim to challenge a 24-year high, around the 139.40 region touched last week.

On the flip side, the 200-hour SMA, currently near the 137.90-137.85 zone, now seems to protect the immediate downside ahead of the descending channel resistance breakpoint, around the 137.60 area. This is followed by the 137.40-137.35 region, or the weekly low, which coincides with the 38.2% Fibonacci retracement level of the 134.25-139.39 rally. Failure to defend the said levels would make the USD/JPY pair vulnerable to breaking below the 137.00 mark and expose the 136.80-136.75 confluence support. The latter comprises 50% Fibo. level and the lower end of the aforementioned channel, which if broken would shift the near-term bias in favour of bearish traders.

fxsoriginal

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news Join Telegram

Recommended Content


Recommended Content

Editors’ Picks

AUD/USD: Bears are making their move

AUD/USD: Bears are making their move

Bears remain below the counter-trendline resistance which leaves the focus on the downside. AUD/USD bears could be about to move in for a run to 0.6800. The price is being rejected by the counter trendline resistance and is forking the makings of an M-formation in the process.

AUD/USD News

EUR/USD struggles to defend 1.0200 as sour sentiment teases DXY bulls ahead of US inflation

EUR/USD struggles to defend 1.0200 as sour sentiment teases DXY bulls ahead of US inflation

EUR/USD fades the corrective pullback from 1.0202 around 1.0215 as traders turn cautious ahead of the key US CPI during the initial hour of Wednesday’s Asian session. Also exerting downside pressure on the major currency pair are the economic fears surrounding the Eurozone.

EUR/USD News

Gold aims to recapture $1,800 as investors trim US Inflation forecasts

Gold aims to recapture $1,800 as investors trim US Inflation forecasts

Gold price is displaying a volatility contraction after printing a fresh monthly high at around $1,800.00 on Tuesday. The precious metal witnessed a decent north-side move on Tuesday and later on turned sideways ahead of US CPI.

Gold News

Iran adopts crypto in foreign trade, debuts with $10 million import order

Iran adopts crypto in foreign trade, debuts with $10 million import order

In a watershed moment for crypto adoption, Iran registered its first official order for importing $10M worth of goods paid for in cryptocurrencies. A private Iranian news agency reported that the Ministry of Industry, Mine and Trade has plans to widely use cryptos in foreign trade.

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!

BECOME PREMIUM

Majors

Cryptocurrencies

Signatures